More than 300 economists from 30 countries have joined forces with Oxfam to send a letter to world leaders calling for an end to tax havens, ahead of the UK Government’s “anti-corruption” summit in London on Thursday.
Politicians from as many as 40 countries as well as World Bank and IMF representatives are set to attend the summit, which is being viewed as a high-profile effort to quell the rising global condemnation of the international financial services industry in the wake of last month’s leak of more than 11,000 documents from a Panamanian law firm.
Signatories – including Capital in the Twenty-First Century author and inequality expert Thomas Piketty, and Nobel Prize-winning economist Angus Deaton – have joined forces in demanding change, stating that there is “no economic justification for tax havens”.
The letter, co-ordinated by Oxfam, the global anti-poverty charity, says: “We urge you to use this month’s anti-corruption summit in London to make significant moves towards ending the era of tax havens.
“The existence of tax havens does not add to overall global wealth or well-being; they serve no useful economic purpose.
“Whilst these jurisdictions undoubtedly benefit some rich individuals and multi-national corporations, this benefit is at the expense of others, and they therefore serve to increase inequality.”
‘Poorer countries are hit the hardest’
The letter goes on to claim that poorer countries are hit the hardest by tax dodging, causing them to lose out on US$170n (£117bn) a year as a result.
Oxfam is particularly critical of the UK, pointing out that more than half of the companies set up by Mossack Fonseca, the law firm in the Panama Papers leak, were incorporated in such British Overseas Territories as the British Virgin Islands.
The UK is “uniquely placed” to take a lead in ending offshore secrecy as it has sovereignty around a third of the world’s tax havens through its overseas territories and crown dependencies, according to the letter.
“We need new global agreements on issues such as public country by country reporting, including for tax havens,” the letter states. “Governments must also put their own houses in order by ensuring that all the territories, for which they are responsible, make publicly available information about the real ‘beneficial’ owners of company and trusts.
“The UK, as host for this summit and as a country that has sovereignty over around a third of the world’s tax havens, is uniquely placed to take a lead.”
Jeffrey Sachs, a US economist and director of Columbia University’s Earth Institute called the situation “shocking”.
“Tax havens do not just happen,” Sachs, who was also interviewed on Radio 4’s Today show this morning, said. “The British Virgin Islands did not become a tax and secrecy haven through its own efforts. These havens are the deliberate choice of major governments, especially the United Kingdom and the United States, in partnership with major financial, accounting, and legal institutions that move the money.
“The abuses are not only shocking, but staring us directly in the face. We didn’t need the Panama Papers to know that global tax corruption through the havens is rampant, but we can say that this abusive global system needs to be brought to a rapid end.
“That is what is meant by good governance under the global commitment to sustainable development.”
Countering Sachs’s arguments was James Quarmby, a tax lawyer at the international tax law specialist Stephenson Harwood. Offshore financial centres actually play an important role in international finance and trade, he stressed, adding that “you can’t just argue for shutting down of finance centres [just] because some criminals use them”.
Speaking on the Today show, Quarmby added that there was “more money laundering going on in New York, Frankfurt and London than any of the finance centres, and [yet] I don’t hear Mr Sachs arguing for those jurisdictions to be shut down”.
‘First of its kind’
This week’s “anti-corruption summit”, as the UK is calling it, is being billed as the first such gathering of its kind. Prime Minister David Cameron is scheduled to host the event at London’s Lancaster House, which such foreign dignitaries as Afghanistan President Ashraf Ghani, Colombian President Juan Manuel Santos, Nigerian President Muhammadu Buhari and Norway Prime Minister Erna Solberg are expected to attend.